Government mandates are not the answer for encouraging markets for biofuels. Manufacturers of paper and wood products have tremendous long-term opportunities to provide renewable energy in a win-win way for jobs and the economy, but short-term mandates and incentives could threaten supply and costs related to feedstock inventories and, ultimately, jobs. Studies show that per ton of wood used, the forest products industry sustains nine times the number of total jobs as the biomass energy sector.

Mandates and incentives for renewable energy projects tend to distort the market for existing forest products manufacturer’s raw material: wood. Why is this important? Not only is woody biomass an essential raw material for carbon-sequestering items such as paper, packaging, and wood building products, it is also used in our facilities for renewable energy production. We produce approximately two-thirds of our energy by using forest residues and manufacturing byproducts to create both thermal and electrical energy.

International and domestic renewable energy policies are already threatening the balance amongst those who rely on wood feedstock. European greenhouse gas mandates are affecting the domestic fiber supply with the increasing export of wood pellets to meet their goals. In the southern U.S. alone, exports of wood pellets will likely more than double over the next five years, and future growth of this industry will impact availability of wood for energy and manufactured products across the country. This follows a doubling of wood pellet exports from that region between 2009 and 2011.

Domestically, we are seeing similar government mandates in the form of renewable standards and climate policy. EPA’s Renewable Fuel Standard calls for 16 billion gallons of cellulosic ethanol in the domestic fuel supply by 2022. Estimates show that if only half of this amount comes from woody biomass, it will exceed the total amount of wood currently used by the pulp and paper industry. If we are to create a sustainable path forward on renewable energy production, market forces – not government mandates – should determine the use of wood and wood residuals for renewable energy. Any policies implemented should treat existing industry biomass energy production equally, guard against government incentives for fiber supplies being diverted for a particular use, and maintain open market access.

Lastly, recognizing the long growing cycle for forests, we must take care to ensure a sustainable fiber supply that can meet the demands of the energy market AND the manufactured products markets for paper, wood, chemical, and pharmaceuticals. Policies that encourage additional demand for biomass should be complemented by policies that increase the available long-term supply of wood to meet future demand for all.

The effort to move toward more sustainable forms of fuel is important. However, taking with one hand and giving with another can only create problems, and worst case, it threatens to destroy jobs in a traditional American manufacturing industry. Policymakers must be mindful of this growing demand on our fiber supply and how it affects actual existing jobs. Government mandates and incentives can be taken away as quickly as they are given, and if an industry is reliant on that for its survival, so are its employees.

Government mandates are not the answer for encouraging markets for biofuels. Manufacturers of paper and wood products have tremendous long-term opportunities to provide renewable energy in a win-win way for jobs and the economy, but short-term mandates and incentives could threaten supply and costs related to feedstock inventories and, ultimately, jobs. Studies show that per ton of wood used, the forest products industry sustains nine times the number of total jobs as the biomass energy sector.

Mandates and incentives for renewable energy projects tend to distort the market for existing forest products manufacturer’s raw material: wood. Why is this important? Not only is woody biomass an essential raw material for carbon-sequestering items such as paper, packaging, and wood building products, it is also used in our facilities for renewable energy production. We produce approximately two-thirds of our energy by using forest residues and manufacturing byproducts to create both thermal and electrical energy.

International and domestic renewable energy policies are already threatening the balance amongst those who rely on wood feedstock. European greenhouse gas mandates are affecting the domestic fiber supply with the increasing export of wood pellets to meet their goals. In the southern U.S. alone, exports of wood pellets will likely more than double over the next five years, and future growth of this industry will impact availability of wood for energy and manufactured products across the country. This follows a doubling of wood pellet exports from that region between 2009 and 2011.

Domestically, we are seeing similar government mandates in the form of renewable standards and climate policy. EPA’s Renewable Fuel Standard calls for 16 billion gallons of cellulosic ethanol in the domestic fuel supply by 2022. Estimates show that if only half of this amount comes from woody biomass, it will exceed the total amount of wood currently used by the pulp and paper industry. If we are to create a sustainable path forward on renewable energy production, market forces – not government mandates – should determine the use of wood and wood residuals for renewable energy. Any policies implemented should treat existing industry biomass energy production equally, guard against government incentives for fiber supplies being diverted for a particular use, and maintain open market access.

Lastly, recognizing the long growing cycle for forests, we must take care to ensure a sustainable fiber supply that can meet the demands of the energy market AND the manufactured products markets for paper, wood, chemical, and pharmaceuticals. Policies that encourage additional demand for biomass should be complemented by policies that increase the available long-term supply of wood to meet future demand for all.

The effort to move toward more sustainable forms of fuel is important. However, taking with one hand and giving with another can only create problems, and worst case, it threatens to destroy jobs in a traditional American manufacturing industry. Policymakers must be mindful of this growing demand on our fiber supply and how it affects actual existing jobs. Government mandates and incentives can be taken away as quickly as they are given, and if an industry is reliant on that for its survival, so are its employees.

The emergence of the U.S. biofuels industry is an unmitigated American success story. During a period in which jobs and capital were flowing out of the country at an alarming rate, the U.S. biofuels industry grew exponentially and now displaces the need for roughly the equivalent of a Saudi Arabia in foreign oil imports. That's about $100 billion in foreign oil savings since 2005.

The question now is how to replicate success. There are three primary pieces:

1) Hold course on the RFS. The oil industry wants to open up the RFS for one reason: because it's working. What energy policy has been more effective than the RFS at achieving its desired outcome? Reduced foreign oil dependence? Check. Job creation? Check. Revenue and wealth creation? Check. Reduced gas prices? Check. Lower carbon emissions? Check. Displaces the need for unsustainable fuels, like tar sands? Check. Cuts into the control OPEC has over the U.S. economy? Check. While the oil industry is rich enough and smart enough to spin the story the other way, they will fail if proponents of the RFS come together and defend the program at this critical time.

2) Fix the tax code. Congress is telling constituents that it intends to reform the U.S. tax code, and that energy could be in the mix for overhaul. This is good news for biofuel proponents if we meet the challenge and clearly articulate what needs to be fixed and why, but it's bad news if we don't (because our stuff will get cut while permanent tax breaks for incumbents get left alone). Step 1A in the process is extending all existing tax incentives for advanced biofuels until Congress fixes the system. Step 1B in the process is properly framing the discussion around the reality that veiled, exclusive and permanent subsidies like percentage depletion, expensing of intangible drilling costs and Master Limited Partnerships distort the investment marketplace in ways that disadvantage innovators in the advanced biofuels sector and undercut the country's ability to compete in the projected $2.4 trillion clean energy marketplace. It's a simple message: un-rig the tax marketplace and we'll compete.

3) Fix the Vehicle Problem. If there ever was a simple solution to a very complex problem in the energy space, flex-fuel vehicles (FFVs) are it. FFVs run on any combination of ethanol and gasoline, and quite easily, methanol, ethanol and gasoline. With FFVs, ethanol (and perhaps methanol) would have the opportunity to compete with gasoline in a fungible marketplace based on price. The nearly instataneously result would be a more competitive fuel energy marketplace with better prices and consumer choice at the pump. But that's not all. Competition breeds innovation and efficiency. We would see new fuels, new production processes and products, and the eventual compliance with the vision set forth by the RFS. All for less than $100 per vehicle.

If we do these three things -- protect a landmark renewable fuel program that costs the government nothing, take the oil and gas bias out of the tax code, and make the irreversible commitment to FFVs like Brazil has already done -- the biofuels industry will continue to grow and innovate, here in the United States instead of somewhere else.

Anyone wondering whether our renewable fuels policy is working should look no further than the U.S. biodiesel industry, which last year supported more than 39,000 jobs on its way toward producing a record 1.1 billion gallons of EPA-designated Advanced Biofuel. It was the first time the biodiesel industry cracked the 1 billion gallon mark, and that success can be attributed in part to strong domestic energy policy in the form of the Renewable Fuel Standard (RFS).

Despite this and other successes under the RFS, a collective amnesia appears to be setting in among alternative fuels critics about why Congress passed the policy in the first place.

In fact, it was just seven years ago that lawmakers created the RFS with overwhelming bipartisan support – and President George W. Bush signed it. The goal then, and the goal now, is to break our persistent dependence on petroleum and limit our vulnerability to wildly fluctuating global oil prices. Congress’ bipartisan legislation – the landmark 2005 energy bill – reflected the nation’s mounting frustration with the see-saw of global oil markets, and it sent strong signals to the business community that the federal government would support ambitious efforts to diversify our supplies with clean, American-made alternatives. American entrepreneurs and investors responded, and we are now getting a rapidly growing share of our fuels from alternative sources, with promising new technologies and feedstocks on the way.

Yet even as gasoline prices approached $4 per gallon just a few months ago, oil companies and others continue complaining that there’s no need for alternatives. These critics argue that domestic production is booming and the “free market” is working fine. This ignores the fact that there is no “free market” in global oil markets that are dominated by a handful of the wealthiest domestic companies in the world and are constantly manipulated by oil cartels and other geopolitical forces beyond our control. After all, petroleum prices remain at historic highs even as an oil boom is underway across North America.

To put things in perspective, in 2004, before the RFS was enacted, the U.S. biodiesel industry was a largely mom-and-pop affair, with only about 25 million gallons of production in an overall U.S. diesel market of some 60 billion gallons. Thanks to American ingenuity and productivity, and with help from the RFS, the industry has grown to where it now has plants in nearly every state in the country, with the capacity to produce some 3 billion gallons per year. Made from an increasingly diverse mix of resources – from recycled cooking grease to agricultural oils and animal fats – it is the first and only EPA-designated Advanced Biofuel with commercial-scale production nationwide.

Yes, biodiesel and other advanced biofuels are currently more expensive to produce than fossil fuels, and many promising technologies won’t develop overnight. But with time, improved scale and new technology, renewable fuels will become increasingly cost-competitive. The simple retail comparison also fails in accounting for the true costs of our oil dependence.

Biodiesel doesn’t require military bases in far-off lands to protect oil interests or risk disastrous oil spills in sensitive ecosystems. Biodiesel significantly reduces greenhouse gas emissions (by 57 percent to 86 percent) that lead to global warming and that could wreak economic havoc in coming years. Biodiesel reduces harmful tailpipe emissions that have been shown to cause cancer and asthma. And biodiesel helps diversify our energy supply so that we can create a true market for fuels.

Americans understand why energy diversity is important. A recent Gallup poll found that two out of three people, including majorities in both parties, want the federal government to support the development of renewable fuels. What we need now is political will and commitment from Washington to follow through on what we’ve only just begun.

Last week’s House hearings highlighted problems with the Renewable Fuels Standard (RFS), a number of them stemming from biofuels volume mandates under the law that have gotten out ahead of markets and technology. Yet the larger concern is that these problems could damage overall consumer confidence, undermining the RFS itself. Congress should adjust the RFS so that that doesn’t happen.

The oil and natural gas industry supports the appropriate use of renewable fuels. But EPA has allowed the RFS’ volume requirements to drive decisions that are unwise. The result is a standard that’s increasingly unrealistic, unworkable and, in some cases, a threat to the vehicles many of us drive.

That volume mandate is driving refiners toward what’s called the E10 “blend wall” – referring to a point where the blending requirement for ethanol in the overall fuel supply exceeds 10 percent, the level that’s safe for U.S. vehicle engines, service station pumps and storage tanks. To meet the RFS mandate, refiners can produce either E15 or flexfuel (also known as E85), a blend of between 51 percent and 83 percent ethanol by volume. E85 can only be used in the flexfuel vehicles that make up about 5 percent of the vehicle fleet today, and its fuel economy is 25 percent to 30 percent lower than gasoline.

Last week a service station owner in Kansas started selling E15 – gasoline blended with 15 percent ethanol. This fuel was recently approved by EPA for 2001 and newer vehicles, even though these vehicles were designed, built, and warranted to operate on a maximum blend of E10. A recent study found that E15 could indeed damage the engines of some cars and light trucks – perhaps millions of them on America’s roads today – as well as lawnmowers, boat engines and other consumer equipment. EPA dismissed concerns of auto makers and the oil and natural gas industry, pushing a fuel into the marketplace to help satisfy the RFS’ mandate for blending increasing volumes of ethanol into gasoline.

Another problem with the RFS is its mandate that oil refiners blend 8.65 million gallons of cellulosic ethanol into the fuel supply by the end of the year – despite the fact no one is producing this advanced form of ethanol commercially. Instead of completely waiving the provision, EPA denies reality and is making refiners buy credits for a non-existent fuel, effectively an added tax on making gasoline.

Congress needs to address that issue, as well as fraud surrounding renewable fuel credits some refiners have bought under a program created by EPA. These refiners became fraud victims after buying invalid credits in good faith. EPA’s initial response? Sorry, that’s your problem – here is your fine, and you also need to buy more credits. Again, this becomes an added cost to making gasoline. Our industry is trying to work with EPA on this issue, but congressional action might be necessary if EPA fails to act quickly enough.

As for military use of biofuels, my only comment is that the price disparity between gasoline/jet fuel and biofuels should give budget watchers some pause. API estimates that by 2020, the military’s planned purchases of bio-jet fuel will cost the government nearly $70 billion more than it would spend to purchase conventional jet fuel. This additional cost would only displace about 15 percent of the military’s jet fuel use. Overall, our industry is proud to reliably supply the military with the fuels it needs to complete its mission.

Again, our industry supports biofuels as part of America’s future energy mix. But the RFS’ volume mandates can’t be oblivious to the market, technology and the needs of consumers. Without adjustments there could be problems large enough to become the RFS’ undoing.

Enough with the anti-biofuel “fantasy fuels” rant by the petroleum refiners. The bottom line is that the Renewable Fuel Standard is working and it is helping America achieve energy security, reduce pollution, and bring innovative new biofuel production technologies to the marketplace. While the advanced and cellulosic biofuel portions of the RFS were signed into law in 2007, the rules to implement the law only came into effect in July 2010. In that relatively short period of time, advanced biofuel producers have made rapid progress in bringing homegrown technology and energy to the marketplace.

BIO has mapped the biorefineries constructed by these companies during their path toward commercial production and assembled photographic evidence of the progress that U.S. advanced biofuel companies are making.

To continue progress in building the biobased economy, and getting biorefineries built, biotechnology companies need capital and stable, long-term, forward-thinking policies. Innovative U.S. companies, such as POET, DuPont, KiOR, INEOS Bio, and ZeaChem have moved as rapidly toward commercialization as possible, relying on stable policy under the RFS to produce domestic alternatives to products that flow from foreign oil. The federal government must continue to support development of the advanced biofuel industry, just as it did other industries vital to national security – such as the computer chip industry, the titanium and the aluminum industries.

The RFS has helped to level the playing field for new companies to enter a very tightly integrated fuel market, which has allowed the domestic biofuels industry to create more than half a million jobs and $50 billion in new activity to the nation’s economy. Since adoption of the RFS, U.S. reliance on oil imports has declined considerably: only 45 percent of U.S. energy is currently imported. The RFS has ensured that these new biofuels contribute to a cleaner, healthier environment and directly reduce the nation’s reliance on foreign oil.

More than 50 advanced biofuel companies have made significant investments to move from the lab to demonstration scale during the past five years, and a growing number are now building large-scale production refineries. These projects are already creating good jobs in research and development, construction, and engineering. Production and use of advanced biofuel could displace at least 15 billion gallons of gasoline and diesel fuel – the equivalent of 475 million barrels of oil – each year by 2022. The direct annual contribution to U.S. economic growth from advanced biofuels could reach $37 billion by 2022.

The domestic advanced biofuel industry can also play a huge part in the effort to achieve energy security that is critical for military readiness and national security. Oil price volatility has already impacted military readiness. In 2010 and 2011, the Department of Defense (DoD) was forced to reprogram budget from equipment and training to pay for higher fuel costs. Consider this, for every $0.25 rise in the price of jet fuel; the DoD must come up with an extra $1 billion annually, which must be diverted from training, maintenance, and other mission-essential programs. Also, the Pentagon spent $17.3 billion on petroleum in 2011, a 26 percent increase from the previous year with practically no change in the volume purchased.

Private companies have made substantial investments and rapid progress in researching and developing advanced biofuels, but they need stable policy and additional investment to complete the job. Ensuring that fuel markets are open to new technologies by maintaining the RFS is a fundamental necessity for the biofuels industry to attract investment. Continuing military and commercial airline testing of biofuels is critical to maintain the momentum toward large scale production and price competitiveness.

Federal policy should encourage commercial development of innovative technologies in order to speed the development of advanced biofuels. If we wait on the markets to do it alone – it will happen – but too slowly. We can’t afford to wait with our current unstable global, political, and economic environment. Private commercial lenders and partners are looking to the federal government to help reduce the risk of technologies that are just beginning to be scaled up. To build a robust biobased economy, policies should support all biobased products, including renewable chemicals and biofuels. Building biorefineries requires large capital investments, but capital formation has been hampered by the recent economic downturn. Federal leadership and policy stability is needed to assure investors.

The RFS serves as the anchor for a set of policies that support creation of the bioeconomy. Sustained, consistent, and diverse support is needed to ensure real world game changing results.

In enacting the Renewable Fuel Standard (RFS) Congress led the country with a policy that provides the U.S. with valuable energy security and economic benefits by expanding domestic production of transportation fuels. The last two presidential administrations differed on many issues, but they gave us a bipartisan roadmap for achieving greater energy diversity and less dependency on imported fossil fuel, which is the RFS.

Last year, biofuels helped reduce U.S. imported oil by 485 million barrels. Since 2005, the U.S. has reduced the cost of foreign oil imports by more than $100 billion through biofuels. Biofuels are an important part of the U.S. transportation fuel supply, and because they are a domestic fuel they create economic benefits here rather than sending Americans’ money overseas.

In 2011, ethanol production contributed $53.6 billion to U.S. GDP and generated $8.6 billion in tax revenue. Across the U.S., there are more than 200 biorefineries providing private sector jobs in rural communities. Today, domestically produced ethanol represents 10 percent of our domestic gasoline market. The nearly 14 billion gallons of biofuels produced and consumed in the U.S. is about twice as much fuel as the country receives from Venezuela today. DuPont is among several companies that have solved the technology challenges posed by advanced biofuels and are now in the process of building the first wave of production plants. This private capital investment to produce cellulosic ethanol and biobutanol will further expand the role of biofuels in securing our energy security.

Biofuels are part of an all-of-the-above strategy to meeting our needs for transportation fuel produced at home. The RFS has been very effective in getting us to this point and setting the stage for this next tranche of private sector investment in advanced biofuels. Policy stability is important to our companies who are investing hundreds of millions of dollars in the U.S. to produce advanced biofuels. Congress should continue its leadership and stay the course on the RFS – and we will bring these fuels to market.

Biofuels are a viable energy alternative, proven to have innumerable advantages that benefit the individual and the security of our nation. Currently the ethanol industry is producing a cleaner burning fuel that is better for our environment and contributes greatly to sustaining our economy. Approximately 400,000 good paying jobs – that cannot be outsourced – have been created and supported by the ethanol industry. These economic opportunities are revitalizing areas nationwide. By using homegrown American ethanol, we are spending our money right here at home, instead of shipping it overseas to volatile foreign nations like Venezuela, Saudi Arabia and Nigeria.

However, biofuels face a number of challenges moving forward. Unfortunately, some of the largest challenges are the unwarranted misinformation and distortions propagated by ethanol and biofuel critics willing to accept the status quo. For over 40 years we have been addicted to foreign oil and they are unwilling to take the steps to securing our energy freedom from overseas. They continue to use every legal, regulatory, legislative and public relations avenue to discredit a surging American industry that is securing our nation’s future. These misinformed opponents employ scare tactics and deception on the performance and reliability of biofuels. This constant smear campaign endured by the biofuels industry only slows progress and puts America’s energy security at risk.

Unfortunately, those threatened by the advancement of biofuels, will relentlessly continue their baseless attacks, but the ethanol industry has not, and will not, shy away from setting the record straight. Biofuels perseverance has shown that progress is possible. Today, ethanol makes up 10 percent of the nation’s gasoline pool, and consumers recognize the price savings it offers, as well as the importance of reducing our addiction to foreign oil. Consumers are increasingly choosing higher blends of ethanol, supporting the American farmer, the American economy and protecting our environment, all while saving money at the pump.

There are a number of vested parties, including members of Congress that have continually advocated for an “all of the above” strategy, when in reality they are doing everything in their power to stop the progression of all renewables, not just biofuels. This flawed “all of the above” strategy that only focuses on fossil fuels will lead to continued dependency on foreign oil, stopping the growth of good paying jobs right here at home that cannot be outsourced and preventing future investment in America. It is time they stop talking out of both sides of their mouth and we begin in earnest to pursue a real “all of the above” energy strategy that advocates for renewables to diversify our energy portfolio. Additionally, we must stop campaigns against renewable energy, such as the recent push by members of Congress to prevent our military from using advanced and renewable biofuels.

The U.S. military and the Department of Defense understand that our dependence on foreign oil puts our nation at a strategic disadvantage. The defense infrastructure understands that political instability and turmoil in the Middle East disrupts our oil imports. Recognizing the necessity of a stable and reliable source of energy to power our armed forces, the military understands that homegrown American ethanol is renewable, reliable and produced right in our backyards.

Biofuels progress has shown we do not have to follow the flawed energy policy mandates of importing costly, energy sources from the likes of OPEC. Ethanol is the only viable alternative that is available, affordable, cleaner burning and creates jobs right here at home.

Recently, Navy Secretary Ray Mabus said, “Our reliance on foreign oil is a significant military vulnerability and it would be irresponsible not to address it. Pursuing a viable, domestic alternative is the best way to preserve the budget for operational necessities…” Growth Energy commends the administration, the military and key policymakers in Congress for their support, foresight and understanding regarding the importance of domestic biofuel production. Their support is vindication that biofuels are contributing to our energy security and independence.

Additionally, moving forward in biofuel development, the administration, as well as Congress, must recognize their important role and work with the ethanol industry to provide the incentives and market stability necessary to foster future innovation and infrastructure expansion.

Policies such as the Alternative Fuel Vehicle Refueling Property tax incentive and the cellulosic ethanol tax credit are critical to spurring the growth and innovation needed to bring these fuels to commercial scale production at a cost competitive price.

Finally, it is imperative that the Renewable Fuel Standard (RFS) is protected. The RFS – the only major energy policy our country has had in the last 40 years - is only five years into a 15 year plan. And it is working. Since the first RFS was enacted in 2005, American dependency on foreign oil has decreased by 25 percent while ethanol production has increased 257 percent. Because of the energy stability created by the RFS, the American ethanol industry is leading the way in fuel innovation.

Lawmakers should closely examine the cost-benefits of our high-priced biofuels policy. One red flag example is the $27.00 per gallon of biofuel for aviation that the Department of Defense currently spends on its expanding biofuels program. Currently, biofuel production absorbs about 25% of U.S. corn production, which has dramatically driven up the demand and the cost of corn for U.S. food supply. Biofuel development also requires tremendous amounts of water which is putting strains on its supply as well. There are also environmental costs. The GHG and other emissions produced from the production and transportation of biofuels have caused many experts to conclude there is little or no environmental benefit from substituting biofuels for fossil fuels for transportation. They're correct, especially when you consider that motor vehicles are becoming more fuel efficient and oil consumption is down, reducing the need to replace petroleum with biofuels. America is producing much more oil and gas in recent years due to hydraulic fracturing so there should be less concern about domestic energy supplies and less need to increase the use of biofuels for transportation. Natural gas is becoming an increasingly attractive alternative to petroleum based fuel due to its low cost and low environmental impact. Biofuels may only make up a small share of the transportation mix, but its high costs and minimal environmental benefit are significant reason for scrutiny.

The biggest challenge facing biofuel development today is the same old, same old: Gasoline is the better buy.

Ethanol is valuable primarily as an octane-boosting fuel additive, not as an alternative motor fuel. A national market for ethanol motor fuel would not exist absent various policy privileges, chiefly the “renewable fuel standard” (RFS) – a Soviet-style production quota system that Congress enacted in 2005 and expanded in 2007. Stalin, at least, had the intellectual modesty to set only five-year plans. RFS2, established by the 2007 Energy Independence and Security Act (EISA), is a 15-year plan.

RFS2 is a case study of unintended consequences. It ramps up production of water-and-fertilizer-intensive corn, expanding aquatic “dead zones” in theGulf of Mexico and theChesapeake Bay. It induces land-use conversions thatcan increase net greenhouse gas emissions. It inflates U.S. corn prices, undercutting the competitiveness of U.S. cattle, hog and poultry producers. It diverts corn from food to fuel production,making food more costly for the world’s hungriest people.

The philosopher Immanuel Kant famously observed that “ought implies can,” meaning that no one should be punished for failing to do that which cannot be done. Thanks to RFS2, the EPA now flouts this ethical precept – a bizarre unintended consequence. Here’s how it came about.

In his 2006 State of the Union message, President G.W. Bush famously declared that America is “addicted to oil.” In reality, we are no more addicted to oil than our 19^th century ancestors were to horse fodder. What Americans value is mobility, and we’ll dump gasoline and internal combustion engines (as our forebears dumped horses and fodder) when somebody actually develops products that deliver more value for our dollar.

In any event, Bush proposed to “fund additional research in cutting-edge methods of producing ethanol, not just from corn but from wood chips and stalks or switch grass.” He set a “goal” to make cellulosic ethanol “practical and competitive within six years.”

Congress heeded the call, and EISA mandated the sale of 36 gallons of biofuel by 2022, with 21 billion gallons to come from ”advanced” (lower-carbon) biofuels, of which 16 billion gallons are to be cellulosic.

Well, it’s now six years later, and cellulosic ethanol remains a taxpayer-subsidized science project. EISA (p. 32) requires refiners to sell 100 million gallons of cellulosic ethanol in 2010, 250 million gallons in 2011, and 500 million gallons in 2012. Reality repeatedly forced the EPA to dumb down the targets (to 6.5 million gallons in 2010, 6.0 million in 2011, and 8.65 million in 2012). Even those anemic goals proved to be too ambitious, because cellulosic biofuel as a commercial commodity still does not exist. Nonetheless, the EPA fines blenders millions of dollars for not selling this phantom fuel. Old Kant would be appalled.

A more serious unintended consequence looms on the horizon. At the same time that ethanol sales ramp up under RFS2, overall fuel purchases ramp down under the Obama administration’s corporate average fuel economy (CAFE) standards. This is a potential disaster for the nation’s retail fuel outlets, warns the National Association of Convenience Stores (NACS) in a study released in April.

In 2010, the nation consumed 137.8 billion gallons of motor fuel, of which 13.1 billion gallons was ethanol. The vast majority of the ethanol sold was E10 (motor fuel blended with 10% ethanol). With CAFE standards increasing from 29.7 mpg in Model Year (MY) 2012 to 54.5 mpg in MY 2025, fuel consumption could decline to 100 billion gallons per year or less. Thus, to achieve RFS2’s 36 billion gallon target for 2022 and beyond, the standard blend would have to be E36 or higher.

Before popping the champagne bottles, ethanol producers should realize that they depend on the nation’s 120,000 convenience stores and other retail outlets to sell their product. The vast majority of retailers are not equipped to handle ethanol blends higher than E15. NACS estimates that convenience stores would have to invest $22 billion to install new blender pumps and storage tanks. Where will they get the scratch? Their profit margins are already razor thin, and CAFE is projected to depress motor fuel demand and sales.

So RFS2 combined with CAFE could bankrupt thousands of the small businesses on which we all depend to fill up our tanks. It’s as if the government’s left hand does not know what its other left hand is doing. Honk if you think central planners can’t plan!

Whenever biofuel policy is discussed, consumers should ask: If ethanol is such a great bargain, why do we need a law to make us buy it? Over most of the past 20 years, a gallon of ethanol cost more than a gallon of gasoline. Since 2009, ethanol has been cheaper than gasoline by volume. That’s because the RFS2, lower demand (a consequence of the recession), and the E10 blend wall combined to create an ethanol glut. Nonetheless, gasoline is still a better buy.

Ethanol has about one-third less energy than an equal volume of gasoline. Consequently, even though ethanol is cheaper by the gallon, it still costs more to drive one mile on ethanol than it does on gasoline. For example, according to the AAA’s Daily Fuel Gauge for July 16, 2012, the mile-adjusted price of E85 is $4.062 per gallon — more expensive than regular gas ($3.396/g), premium ($3.680/g), and diesel ($3.685/g).

Consider also the EPA/Department of Energy Web site, www.fueleconomy.gov. The relevant information is not easy to find. Once you get to the landing page, click on Advanced Vehicles and Fuels, then on Flex-Fuel Vehicles, then on Fuel Economy Information for Flexible-Fueled Vehicles, and then again on Flex-Fuel Vehicles. For each of 25 models, the agencies estimate how much the typical flex-fuel vehicle owner spends per year to fill up with either regular gasoline or E85. The estimates fluctuate as gasoline and ethanol prices fluctuate. Assuming today’s prices, the average flex-fuel vehicle owner spends about $700 more per year to run the vehicle on E85.

The Renewable Fuels Association (RFA) nonetheless claims that RFS2 saves consumers a bundle of money. An RFA-funded study, conducted by Iowa State University’s Center for Agricultural and Rural Development (CARD), concludes that from January 2000 to December 2011, “the growth in ethanol production reduced wholesale gasoline prices by $0.29 per gallon on average across all regions,” and in 2011 lowered gasoline prices by a whopping $1.09 per gallon.

CARD’s argument boils down to this. Motor fuel sold at the pump today is E10. Thus, ethanol makes up 10% of the motor fuel supply for passenger cars. If there were no ethanol, the motor fuel supply would be 10% smaller, and gas prices would be $1.09 per gallon higher (p. 6).

Well, sure, if we assume a 10% loss of supply and no change in demand, prices will rise. But this tells us nothing about the actual impact of RFS2 on fuel prices.

Note first that even in the absence of government support, billions of gallons of ethanol would be sold each year as an octane booster. So a scenario in which 10% of the motor fuel supply simply disappears does not correspond to any policy option Congress is actually considering.

More importantly, CARD assumes that if the motor fuel supply were 10% smaller, refiners would act like deer caught in the headlights. They would not increase output to sell more of their product despite being able to charge up to $1.09/gallon more. In other words, refiners would not engage in the profit-maximizing behavior that would bring supply back into balance with demand, moderating the initial price increase.

Why wouldn’t they? There are two possible explanations. One is that refiners don’t want to get rich, which is obviously false. The other is that refiners operate like a cartel, colluding to restrict output in order to charge monopoly rents. CARD gives no sign of endorsing this view, and investigations by the Federal Trade Commission repeatedly fail to find evidence of such anti-competitive scheming.

CARD’s analysis also ignores the opportunity costs of ethanol’s policy props. Capital is a finite resource. Every dollar that refiners are forced or bribed to spend on ethanol is a dollar they cannot spend to produce gasoline. When government mandates ethanol production, it also discourages gasoline production. It is silly to assume that refining capacity diverted by federal policy to boost ethanol’s market share would have been left idle in a free market and not used to produce gasoline.

Although interesting as a sensitivity analysis, the CARD study provides no justification for maintaining or expanding federal support for ethanol. Gasoline continues to provide more value to the consumer. The biofuel lobby has been much better at hiding that fact than at changing it.

With the nation suffering its worst drought since 1956, now is an appropriate time to reconsider public policies regarding the use of biofuels in the energy mix. Though direct subsidies to ethanol refiners, such as the 46 cents per gallon tax credit, have been discontinued, the 10 percent requirement to blend corn-based ethanol with gasoline remains. What’s more, the Obama administration wants to increase the mandate to 15 percent. With perhaps one-half of this year’s corn crop lost to the extreme heat and lack of rain, the existing mandate should be lifted immediately. Otherwise consumers will feel a double whammy from rising corn prices, both at the grocery store as well as the gasoline pump.

In addition, those provisions of the 2007 Energy Independence and Security Act (EISA) dealing with biofuels should be repealed, most notably the requirement that petroleum refiners switch to cellulosic ethanol. As Deroy Murdock of Stanford University’s Hoover Institution pointed out recently, cellulosic ethanol simply doesn’t exist, and the one company attempting to develop this fuel went bankrupt in 2010. Nonetheless, the Environmental Protection Agency recently imposed a $6.8 million penalty on oil refiners for NOT blending cellulosic ethanol with gasoline, jet fuel and other products.

Government meddling in the energy markets has been fraught with negative unintended consequences ever since the OPEC embargo of the 1970s when Congress enacted a series of laws that did little or nothing to encourage domestic production and actually made us more dependent on imported oil. In like fashion, our policies toward biofuels are resulting in waste, inefficiency and higher costs while doing nothing to enhance America’s energy security. Along with renewables, it’s time to subject biofuels to the market test to ascertain if they can compete with other energy sources.

“Oil has a monopoly over transportation… [it is] a conspiracy in restraint of trade.” – R. James Woolsey, former Director of Central Intelligence

“It is naïve to think these are simple problems. These are monstrously complex, knotty problems.” – Kenneth P. Green, American Enterprise Institute

“The market outcome is what we have now.” – Rob Barnett, Bloomberg Government

These statements are from a spirited panel discussion that OurEnergyPolicy.org recently hosted with the bipartisan House Oil & National Security caucus, which examined, among other things, the feasibility and practicality of a large-scale transition to biofuels.

Global politics, regulatory structures, and market forces are among the challenges at the heart of efforts to make biofuels a bigger piece of the liquid fuels puzzle. From these central challenges come big questions about whether our vehicle fleet can and should be modified to support alternatives to oil, the merit and complexity of augmenting the American transportation infrastructure, and the role of government in incentivizing, supporting, or mandating transportation alternatives.

Well-crafted biofuels policy could deliver significant energy security, economic, and environmental benefits. Reaching agreement on what “well-crafted” policy is, however, can seem impossible, and the distances between what different stakeholders want and are willing to compromise on often seem insurmountable. At OurEnergyPolicy.org we believe that common ground exists, but requires thoughtful consideration of a broad spectrum of positions and proposals. For example, if one party believes we don’t have free markets in oil, and another party believes free markets are in fact working but rejecting biofuels, common ground on the role of the market in this issue exists. Identifying common ground and working from there may lead to creative solutions that meet a wide range of policy goals—but first we need to be willing to engage with one another, seriously and substantively, on these tough issues.

The starting point for any consideration of a biofuels policy is an acknowledgement that the biofuels initiatives over the past two decades have been a government sanctioned scam that did nothing more than promote crony capitalism. They took money from taxpayers and enriched the few. These programs have not worked and more of the same will not work either. Proponents seek profit though laws and regulations because they can’t compete in the market place for fuels.

A forward looking policy should begin with energy realities and a good understanding of what we are trying to accomplish in promoting biofuels and the implications in pursuing them. For too long, biofuel policy decisions have been driven by the illusion of energy independence, meaning no or very low oil imports, pursuing air quality improvements, and addressing climate change. These pursuit of these objectives has lead to policy decisions that were detached from reality and an understanding of economics, science, and technology.

Corn based ethanol has been subsidized for decades even though the impact on oil imports has been trivial. Instead of reducing imports, the ethanol policy has simply been a political tool to enrich corn farmers and ethanol producers at the expense of taxpayers. Since the passage of the 1990 Clean Air Act amendments, the waste probably exceeds $100 billion. Producers over the past 20+ years have lobbied continuously for larger and larger mandates because their greed knows no bounds. In the process, corn production has been shifted from food uses to fuel, leading to higher food prices and lower exports to countries who rely on corn as a basic food product.

When the Clean Air Act was being amended in 1990, the oil and auto industries urged Congress to just set emission standards and let the industries work together to meet them. Instead, Congress mandated how reformulated gasoline would be made and where it would be used. This opened the door for ever increasing mandate levels. In 2007, the Energy Independence Act, required domestic fuel suppliers to meet quotas of a special biofuel blended into gasoline and diesel fuels. The requirements were intended to spur greater alternative fuel development, improve energy efficiency, and cut back on greenhouse emissions in the long-run. In 2011, the target was set at 6.6 million gallons; this year it’s 8.65 million. The ultimate goal is to introduce 36 billion gallons of biofuel into the market by 2022. On paper, it seems like a logical objective. There’s only one catch – the cellulosic biofuel blend doesn’t exist in usable form .

Within 2 years of Congress acting, oil consumption plateaued. But the mandate trumped the marketplace and now we have the perverse situation that companies are being fined for not using a blending additive--cellulosic ethanol-- because it doesn’t exist. But, EPA remains an agent for ethanol producers and is seeking ways to increase the amount of ethanol used in gasoline even though that would void many car warranties and create logistical nightmares.

The alleged contribution of ethanol is reducing greenhouse gas emissions is equally bogus. Whatever savings there are in tailpipe emissions are offset by increased emissions from fertilizers used to grow corn. Further, no attempt to control emissions is going to work as long as the developing world is pursuing economic growth and a better standard of living. Further, the notion that CO2 emissions automatically translate into dangerous warming is simply inconsistent with a real understanding of how the climate system operates.

Looking to the future, a rational biofuels policy would acknowledge that they are unlikely to make a significant contribution in the foreseeable future, perhaps a couple of decades. The private sector is conduction research on cellulosic technologies and the potential of algae. The government should look at research gaps and then fill them with investments in basic research. Both the IEA and EIA in their long term forecasts conclude that oil will continue to be the dominant transportation fuel source between now and 2035. Progress in engine and emission technologies will make gasoline and diesel use more efficient and cleaner. Over the course of the next two decades, natural gas for fleets will grow as a fuel source.

If biofuels are going to have a future as a transportation fuel, it will not come from subsidies and mandates but from innovation and technology. Incentives, like making the R&D tax credit permanent, will do more do spur innovation and technology advances than another flawed industrial policy. Policies and regulations should complement market forces instead of distorting them.

Biofuels has become a bellwether for many different issues and interests. Most have forgotten than during the 1970 oil embargoes, we had more than a quarter of our corn rotting in silos and very high incidences of aflatoxin-infected grains, which are high carcinogens. To use rotting and contaminated grains to offset fuel imports made lots of sense - and it still does today. Blended at 10% with gasoline, the alcohols displace higher cost aromatics, mostly carcinogens, another plus.

Most of our corn goes to feed cattle and poultry. Today, Ethanol production consumed 5 billion bushels of corn in 2011, of which 1.547 billion bushels re-entered the market in the form of distillers dried grains (animal feed) with solubles and corn gluten, according to the 2012 World of Corn report from the National Corn Growers Association. After accounting for DDGS production, ethanol plants were responsible for 27.3% of corn usage in 2011. The gross amount of corn for food also has grown substantially.

But the US Congress in its wisdom wanted to limit foodstuffs for biofuels. In the 2007 Energy Bill (EISA'07) , Congress set a 36 billion gallon biofuels goal of which 22 billion was mandated to come from non-food feedstocks, and agnostic on the type biofuels. The market has lagged, but the trajectory for manufacturing biofuels from non-food feedstocks is beginning to grow.

Several industrial-scale cellulosic ethanol plants are being built in the United States, including an Abengoa bioenergy biomass plant in Kansas expected to start production in 2013, and an expansion of Poet's conventional ethanol plant in Iowa. Project Liberty will be Poet's first commercial-scale, cellulosic ethanol plant. Scheduled to begin operations in 2013, it is expected to produce 25 million gallons of ethanol per year from corncobs, leaves and husks, provided by Iowa farmers. But this year cellulosic biofuel output is likely to be 6.6 million gallons, far below the RFS target for 2011 of 250 million gallons, the report points out.

The Department of Defense is always looking for options. DOD Darpa's research projects have already extracted oil from algal ponds at a cost of $2 per gallon. It is now on track to begin large-scale refining of that oil into jet fuel, at a cost of less than $3 a gallon, according to Barbara McQuiston, special assistant for energy at Darpa in a Guardian article. That could turn a promising technology into a -market-ready one. Researchers have cracked the problem of turning pond scum and seaweed into fuel, but finding a cost-effective method of mass production could be a game-changer. "Everyone is well aware that a lot of things were started in the military," McQuiston said. Studies on DOD burdened costs of fuel range from $40 - $387 per gallon, whereas biofuels could be made in or near Theater of War. And these newer fuels can be "drop in fuels" meaning noo change in our auto, truck or airplane engines.

The broader Pentagon effort to reduce the military's thirst for oil, which runs at between 60 and 75 million barrels of oil a year. Much of that is used to keep the US Air Force in flight.

According to Maccoby's recent 2012 article in The Globalist, "For the record, sustainable biofuels are actually better in many ways. New tests conducted at the Wright-Patterson Air Force base have proven that U.S. warplanes fly faster and carry more payload on missions when flying with synthetic fuels, including biofuels, compared to conventional military jet fuels made from petroleum." This may be an inconvenient truth given. But it is a vital truth nevertheless. Indeed, the Wright-Patterson tests also revealed that renewable fuels lower engine temperatures by 135 degrees as a result of the absence of impurities found in conventional fossil fuels. This is significant because an additional 25 degrees in temperature can shorten the life of the engine by half. This new data means that engine parts could last up to ten times longer if new high performance fuels are employed in place of petroleum."

These new fuels can be made from algae, trash, sewage and a host of other materials that can be converted in every State right here in the United States of America. This is costly at present, given the relative newness of the technology and the gradual process of bringing it up to full industrial scale. But they do not cost as much as the money the American people pay in taxes subsidizing petroleum companies.

Computers, cellular phones , and hybrid cars were orders of magnitude more expensive when they first came to market. There has been a bipartisan consensus over three decades to provide sustainable domestic options. While energy input for corn-based biofuels gets 1.3 units out for every 1 unit of energy in, whereas cellulosic can drive yields of 7 percent energy in for 93 percent out. Dead timber on the forest floors which can not be absorbed into the forest drive horrific forest fires, sewage and trash already centralized in our cities, and stalks, stovers, cannery wastes and contaminated crops --all converted to energy and other products which will protect human health, watershed pollution, and reduce energy imports.

We are still in the infancy of sustainable biofuels conversion and production from renewable domestic resources. To limit this evolution would undercut our national security, harm human and ecosystem health, increase carbon and reduce water resources, and would harm both urban and rural economic growth. The US should maintain the policies to enhance sustainable biofuels without the seasaw in policy support that has hampered the US energy development for decades.

Note: my coauthored book The Forbidden Fuel: A History of Alcohol Fuels was recently re-released by University of Nebraska Press in 2010.

America’s biofuel policy is working. In fact, the Renewable Fuel Standard (RFS), the requirement that the nation use increasing volumes of renewable fuel, is arguably the most successful energy initiative the nation has ever undertaken. I noted these successes in testimony last week before the House Subcommittee on Energy and Power: http://bit.ly/PRSG63.

To wit, the passage and enforcement of the RFS has taken the ethanol from just a few billion gallons of production in 2007 to nearly 14 billion gallons today – 10% of the nation’s gasoline supply. It has helped reduce America’s reliance on imported oil from 60% in 2007 to 45% in 2011. Moreover, it has expanded economic opportunity in countless rural communities and helped create hundreds of thousands of jobs that cannot be outsourced. Bottomline: the RFS is working.

The cacophony of RFS criticism coming from Big Oil in an effort to preserve their market share focuses on two issues -- that a few incidences of fraud in biodiesel RINs undermines the integrity of the whole program and necessitates reform; and that the failure of the cellulosic ethanol industry to meet their mandate demands repeal. Both of these are red herrings being exploited and overblown for political theatre. Neither requires legislation to address.

The debate over RINs requires some context. Less than 0.5% of all RINs generated under the RFS have been found to be fraudulent and none of those have come from ethanol production. Those that produced the fraudulent RINs have been caught and punished. The enforcement system worked. Still, industry remains in discussions with obligated parties and EPA to find common sense, non-intrusive ways to address this issue moving forward. Legislation would only delay and confuse this effort.

The ruckus about cellulose is equally distorted. The cellulosic requirement has only been in place for 2 years, after a worldwide economic collapse that made new investment in cutting edge technology virtually impossible. Chill. Investments are just now flowing back into the sector. Plants are being constructed today. And, future cellulose targets will be met. In the meanwhile, EPA has the authority to adjust the cellulosic requirements and they have. No additional statutory authority is needed.

Given the success of the RFS and the fact that it’s just 5 years old (compared to the century of government support for the petroleum industry), our advice to Congress and the Obama Administration is simple: stay the course

Congress does need to extend tax incentives for cellulosic biofuels. The cellulosic production tax credit is an important tool for next generation biofuel companies. Like the RFS requirements, it aids in attracting capital investment and would accelerate the timeline for commercial scale production. These tax incentives, together with the creation of master limited partnerships and other creative tax policies now available to the petroleum industry, would greatly decrease the time until cellulosic biofuels are on the market.

Additionally, Congress should pass the Open Fuels Standard. This legislation would mandate that vehicles be produced that are capable of operating on a wide range of fuels. Given that 75% of Americans say they want more choice at the pump, this seems like a common sense approach.

Finally, Congress should continue to provide government agencies the funding they need to invest in and develop new technologies. Everyone in Washington understands that budgets are tight. But providing USDA, the Department of Defense, DOE and other agencies with the funding needed to invest in new technologies and spur innovation is the kind thinking that built the transcontinental railroad, developed GPS technology, and put a man on the moon.

Speaking of budget constraints, there are some things Congress could do to free up additional funds for renewable fuel investment. However, it is not worth lamenting the imbalance in government assistance afforded a mature petroleum industry versus a still adolescent renewable fuels industry. This Congress is not inclined to remedy that imbalance. Rather, it seems all too eager to smother renewable fuel innovation.

Our ask of Congress is quite simple: keep on keeping on. Continue the policies that are in place and give them the time they need to succeed. That means maintaining the integrity of the RFS, extending cost-effective cellulosic tax incentives, and giving other federal agencies the funding they need to spur American energy innovation.